Bear Market Rally May Persist Until Strait of Hormuz Conflict Resolves; RBI Expected to Reassess Risk Outlook Next Week, Maintain Rates Until 1H Cycle 27

Market Uncertainty Mounts as Strait of Hormuz Crisis Deepens

The ongoing crisis in the Strait of Hormuz has sent shockwaves through the global economy, with many experts warning that a durable market rally is unlikely until the situation improves. Divam Sharma, Co-Founder and Fund Manager at Green Portfolio PMS, believes that the RBI will need to trim its FY27 growth projections meaningfully in its upcoming April meeting.

According to Sharma, a realistic FY27 full-year growth number might settle around 6.2–6.5 percent, depending on how much weight the RBI gives to the Hormuz risk persisting through Q2. He also expects the inflation forecast to be closer to 4.5–5.0 percent for H1 FY27.

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The RBI's hands are tied, according to Sharma, as long as the Strait of Hormuz remains effectively shut. The country imports over 80 percent of its crude, and oil is the single most consequential input cost across the economy. The transmission of the energy shock is very direct, and institutional investors simply cannot underwrite a sustained risk-on trade when the single biggest macro variable remains uncertain.

The RBI is expected to hold rates and significantly revise its risk commentary, preparing the market for a prolonged pause. Market expectations suggest the repo rate will stay at 5.25 percent at least through mid-2027. Sharma agrees with this assessment, stating that unless there is a dramatic de-escalation in West Asia and a meaningful pullback in crude, the RBI's hands are tied.

The rupee has already depreciated by 10 percent in FY26, and it could hit 100 if the West Asia war situation persists. The path to 100 is not as far as people think, and the structural pressures are all pointing in the wrong direction. FIIs are dumping Indian equities consistently, and the RBI has already burnt through $30 billion in reserves in March.

The consensus earnings growth forecast for FY27 has already been downgraded to 6–7 percent from 13–15 percent. This is due to the direct impact on oil-sensitive sectors, indirect channels, and the negative wealth effect created by FII selling.

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The risk to earnings is asymmetric to the downside right now, and investors are advised to position accordingly. If the war ends quickly, the rebound in earnings will lag the market recovery. But if it persists, the earnings cuts will be deeper and more broad-based than what consensus is currently pricing.